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Fitch Upgrades ICICI Bank’s Individual Rating To ‘C’
-15 December, 2005
: Fitch Ratings has upgraded India-based ICICI Bank’s (“ICICI”) Individual rating to ‘C’ from ‘C/D’. Fitch has also affirmed the remainder of ICICI’s ratings at Long-term foreign currency ‘BB+’, Short-term foreign currency ‘B’ and Support ‘3’. The Outlook on the ratings is Stable.
Fitch says that the upgrade in the bank’s Individual rating reflects its improved financial condition over the past two to three years, particularly compared with its earlier incarnation - the Industrial Credit and Investment Corporation of India (“ICICI Ltd.”) - which was primarily a project financing institution. At the same time, Fitch also expressed some concerns on the bank’s explosive growth in consumer loans, which have increased ten-fold during the last three years and constituted c.63% of total loans as at June 2005. However, such risks are somewhat mitigated due to the continued relatively low levels of penetration in the consumer banking sector in India, the fact that more than 90% of ICICI’s consumer assets are secured (with over 50% of consumer loans made up of low-risk residential mortgages) and that the buoyant economic conditions in India appear likely to continue for at least another one to two years. In fact, ICICI’s net non-performing loan (“NPL”) ratio for its consumer portfolio was only 0.56% at June 2005, although such low delinquencies are also the result of the bank’s high loan growth and the relatively unseasoned nature of the bulk of its consumer portfolio.
Nevertheless, thanks to an improving credit environment and to write-offs, ICICI’s asset quality in general has improved; gross and net non-performing assets (“NPAs”) ratios were 4.9% and 1.96%, respectively at June 2005, compared with considerably higher ratios in previous years. Although a part of the bank’s ‘restructured’ performing loans (inherited from the erstwhile ICICI Ltd. and still slightly higher than reported gross NPAs) may pose some potential asset quality problems in future, this should be limited as the financial health of many of such borrowers has become better as a result of an improvement in the fortunes of the commodities industries. Furthermore, ICICI’s ability to successfully raise large amounts of equity both from the institutional and retail markets (it has just successfully raised INR80 billion equivalent in the Indian and US markets after raising INR32bn in April 2004) enables the bank to satisfactorily address its latent asset quality problems and fund its future growth. ICICI’s total and tier-1 capital adequacy ratio were 12% and 7.6%, respectively at June 2005.
ICICI Bank’s net interest margin, which has historically been lower than most commercial banks due to its legacy of high-cost borrowings inherited from the former ICICI Ltd., is nevertheless improving (2.4% in June 2005) due to the bank’s strong push to grow its low-cost deposits. Technologically, ICICI is among the most advanced in India, and together with its strong management team and robust risk management systems, this enables the bank to compete effectively not only with its local peers but also against well-established foreign banks.
Fitch further notes that as the second-largest bank in India, the propensity of government support would also be high for ICICI, although its Long-term rating is largely the result of its superior standalone financial condition compared with most Indian banks. ICICI is listed in India and the NYSE and as at September 2005, it had total assets of c.USD43bn, with foreign institutional investors holding about 73% of its shares.
Rating of State Bank of India...Read detailed comments by Fitch